VEB Innovations cooperates with Internet Initiatives Development Fund to invest RUB200mn into Russian No. 1 crowd investing resource StartTrack

VEB Innovations is heading into a deal with StartTrack, a Russian crowd investment resource created in 2014 and backed by Russia’s Internet Initiatives Development Fund (IIDF). Overall investment to develop the resource is estimated at RUB200mn. The investment will power the launch of new SME collective finance tools, broaden its efforts to develop business financing ecosystem and bring the new financial product into international markets. By participating in the project, VEB Innovations will get a new tool for creating and monitoring the project pipeline and broader opportunities for encouraging start-up investment inflow.

StartTrack is the No. 1 Russia’s business crowd financing platform organised as an online resource for small and medium companies to raise finance from a wide variety of investors: private investors, business angels, venture and PE funds or family office. StartTrack does not focus on a particular industry, with money raised to finance any type of business regardless whether it has already existed or it is a start-up, even at the seed stage. Investments are raised as loans, convertible loans or via sale of interests or shares.

The StartTrack project is important for us not only financially, but also strategically. The role of VEB Innovations as a VEB Group company is reaching out and working on and fostering innovation-driving projects to grow national champion businesses and to accelerate efforts in spreading Russian technology internationally. Via StartTrack, high-potential investment targets can be identified and extra money can be raised both domestically and across the border to successfully develop projects. Moreover, in line with our strategy, we will broadly and proactively work together with stock exchanges like Hong Kong and Singapore Exchange in order to be able to float IPOs abroad to finance our projects. This is another destination for building strategic synergies with StartTrack, said VEB Innovations chief executive Kirill Bulatov.

The IIDF director Kirill Varlamov tells that StartTrack was created as a core platform for driving the private investment market as part of Russia’s business ecosystem: Today, 60% of SME crowd investments in Russia is raised via the StartTrack platform. The investment potential brought about by the resource and 2,000 of its accredited investors tops RUB7 bn and it continues to soar.

Russian SMEs have very low viability. Banks mainly issue secured loans to SMEs, and the SME lending portfolio has been decreasing for the fifth year in a row. During 2016 alone, 740,000 of small and medium companies wound up their business, with many of them being unable to raise finance to continue and grow operations. Russian banking framework offers almost zero support to the development of the small and medium businesses. So we are dealing with the challenge by using modern technology, as we are automating the crowd finance process. The automated resource supported by the team of 25 persons reached turnover of RUB1.3 bn and enables 13 transactions a day (as designed). The resource has enabled the timeframe from application through to investment to be as short as 2 to 3 weeks. When we were launching StartTrack, we thought that only IT start-ups will attract investors, but the demand was really great. So children’s football clubs, Internet stores, private hospitals and minor companies have started to gravitate toward the platform. And, most counterintuitively, they are finding the investments they seek for. Investors now appreciate the opportunity, as they can both earn money and get the insights about promising companies, pointed out StartTrack chief executive Konstantin Shabalin.

As StartTrack accumulates investments, it will be able to launch new investment tools and raise money via equity and bonds and, if legally feasible in the future, via tokens as well. Mr. Shabalin comments that today Russian SMEs virtually do not use these instruments due to high costs: For smaller companies, equity finance is a challenging mechanism, all the more so for smallest companies. We are going to change this by creating new market segment using instruments that would pose lower risks to the companies compared to loans. As we create more convenient instruments, we are taking small companies to new heights to grow national-level top businesses, who will generate billions of rubles and be floated in the Moscow Stock Exchange. One of our clients was able to raise RUB300 mn over 2 years, and its monthly earnings soared to RUB42 mn (14 times as high versus the initial level). And 6 of our client companies have entered international markets.

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